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Weekly Options on Stocks
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Weekly Options on Stocks

  #11 (permalink)
Trading Apprentice
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Closing OTM

which is what I wanted. $225 premium on the week, not a lot but not bad tipping my toes back into the water to see if it's warm enough to swim. Pun intended (TOS ).

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  #12 (permalink)
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There is literally no difference between selling and collecting premium on one instrument and underwriting an insurance policy on your friends new 2019 car.

People always overpay for insurance and that is a nice business if you are Geiko with millions of policies so the risk can be pooled.

You can't just write one policy though, collect small premiums and bet on your friend never totaling their car. That is not a sustainable business model obviously.

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  #13 (permalink)
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Pugged View Post
which is what I wanted. $225 premium on the week, not a lot but not bad tipping my toes back into the water to see if it's warm enough to swim. Pun intended (TOS ).

That's great!! Slowly getting back into the game.
What's your on stop loss or how are you setting you're risk/reward on trades like these?

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  #14 (permalink)
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centaurer View Post
There is literally no difference between selling and collecting premium on one instrument and underwriting an insurance policy on your friends new 2019 car.

People always overpay for insurance and that is a nice business if you are Geiko with millions of policies so the risk can be pooled.

You can't just write one policy though, collect small premiums and bet on your friend never totaling their car. That is not a sustainable business model obviously.

Thanks for the Interesting Analogy!

When you mention "You can't just write one policy though", do you mean can't just sell a naked call/put for just 1 stock or referring to structure of the option (i.e, vertical spread vs. naked)?

Thanks!

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  #15 (permalink)
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I've been...

Selling weekly put options since they were created. I must be the blind squirrell that keeps finding nuts...LOL.



centaurer View Post
There is literally no difference between selling and collecting premium on one instrument and underwriting an insurance policy on your friends new 2019 car.

People always overpay for insurance and that is a nice business if you are Geiko with millions of policies so the risk can be pooled.

You can't just write one policy though, collect small premiums and bet on your friend never totaling their car. That is not a sustainable business model obviously.


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  #16 (permalink)
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Hey Man...

Generally speaking. I sell weekly 30 delta put options on stocks that I'd not mind owning at that strike anyway. I can almost always roll if I need to. I typically will look to roll if the short puts are > 50 delta. The first look is always buy the short put sell the same ex put that is now 30 delta. The buy 50 delta sell 30 delta roll usually allows a reasonable decision to buy the stock or escape. Sometimes I buy the from week and sell the next week 30 delta put. Sometimes I let ITM exercise and buy the stock. If you dont want to or dont have the capital to buy stocks you can always buy put spreads...those will always start out debit but if you buy an 8 week put you can sell 7 weekly's against it. You make less money but your theoretical risk is the difference between strikes.

Dan

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  #17 (permalink)
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Sure..

@TraderRich

The basic notion is outlined above.

I have a list of about 50 stocks that I would not mind owning. At any given time I do typically own between 10 and 30 of those names.

There is a fairly complex methodology that creates that list of "basket target" stocks. The list is under constant review with two or three adds/drops each month or so. Current list:

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So from that list I typically write puts on 5-10 names each week. Again, there is a metric for that based mostly on my hallucination about those companies and how they are trading. One item I like to look at is what I call front Ex 30 delta put yield. I take the mark for the put and divide it buy the strike price. That gives me a put yield coefficient that I track to see where the juice (risk /reward) is best...again based on my accumulated experience "hallucination". You can get an annualized return number by taking (premium raised divided by strike) times (365 divided by days remaining).

I use a similar series to sell calls against long stock when I feel that a company is overvalued or about to take a shit.

These are options I sold today. None of these are rolls, all are new sells. I usually sell or roll on Thursdays or Fridays depending on when I think the DPM will dial out the weekend theta. I sold these because I felt the premium was right for the risk.

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Hope that helps. Dan


Last edited by wldman; January 28th, 2019 at 02:29 PM. Reason: spelling
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  #18 (permalink)
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TraderRich View Post
That's great!! Slowly getting back into the game.
What's your on stop loss or how are you setting you're risk/reward on trades like these?

It's more a psychic thing I would have to say, you have to have the cash (or other securities, margin) in your account in case you are assigned (contracts times strike). So, sometimes it seems like a poor return, except that the company (or etf) would have to go bankrupt to really harm you.

I used to scan for minimum ROR, but now I just look for decent premium and low probability of ITM. Premium of less than .15 is not really worthwhile, except in times of low volatility you take what you can get there. Premium at .15, as you probably know, means $150 on 10 contracts. And I have to be really careful when the strike is above $100. You can't sell too many with my portfolio without maxing out.

I check again thursday for the price activity and make preparations to roll if I need to. Easier to roll out and down for net credit on Thursday instead of expiration Friday. Net credit keeps you making money, net debit takes you away from making money.

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  #19 (permalink)
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Pugged View Post
I traded weekly options, specifically Puts, as if the strategy works ideally, you get paid every week. DTE less than/equal to 5. Puts bought otm, and stay otm, expiring worthless at week's end. I made a fair bit more than what I lost in october with the strategy.

with selling puts, you are taking in premium and trying to preserve it, you could take a loss quickly but those can be pretty significant due to short term volatility. You try and roll out and down for net credit if you have to roll. You don't sell puts wanting to own any stock generally, though you can sell calls against assigned shares, within limits. Last summer, all of a sudden, good stock's puts weren't expiring worthless at week's end, even though they were selected with a probability of ending up in the money less than 20%.

I sold 10 msft p103's on tuesday for about $220. Still at 106 before the open this morning. Expiry is tomorrow, and I want to stay otm. That way I keep the $220 and look for another (others) next week. An analogy to baseball comes to mind; this is a lot of bunting, taking a while to build up runs. Unfortunately, when it goes bad, it's like all you're doing is bunting and the other side is hitting home-runs on every pitch.

IMHO, it's better to sell OTM put spreads rather than naked puts. You can take 2x the number of positions to collect the same amount of premium but will have your losses capped to prevent the big losses. Your margin requirements are much smaller also so can use the additional margin for positions in other stocks.

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  #20 (permalink)
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wldman View Post
Generally speaking. I sell weekly 30 delta put options on stocks that I'd not mind owning at that strike anyway. I can almost always roll if I need to. I typically will look to roll if the short puts are > 50 delta. The first look is always buy the short put sell the same ex put that is now 30 delta. The buy 50 delta sell 30 delta roll usually allows a reasonable decision to buy the stock or escape. Sometimes I buy the from week and sell the next week 30 delta put. Sometimes I let ITM exercise and buy the stock. If you dont want to or dont have the capital to buy stocks you can always buy put spreads...those will always start out debit but if you buy an 8 week put you can sell 7 weekly's against it. You make less money but your theoretical risk is the difference between strikes.

Dan

Hi Dan, Thank you so much for the insight!
I do have few questions. (Apologize in advance if I misunderstood your explanation or missed some concept I should know)

1) "The buy 50 delta sell 30 delta roll usually allows a reasonable decision to buy the stock or escape"
I am bit confused here. When you roll your put to the following week for more premium, why do you also want to buy the stock? If the lost resulted from the buying back the 50 delta at the current week is more than the potential new premium for the following week, is that when you will close your position/escape for the week?

2) "those will always start out debit but if you buy an 8 week put you can sell 7 weekly's against it"
This is interesting strategy. I never looked into it. Assume the market doesn't hit the 8 week long put, the value decreases every week and it will eventually expired worthless. If I sell the weekly puts for 7 weeks at 30 delta, how to determine the best strike price for the long put 8 weeks away? Because 8 week away require quite some capital and weekly 30 delta doesn't have too much premium during low IV. By the end of 8 weeks, could the premium collect just barely break even on the initial debit the long put? If so, what's the advantage of this strategy?

Thanks in advance!!!

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